Analyses Show Major Flaws in Earthquake Strengthening Regime

A report released today by a
Wellington risk consultancy, Tailrisk Economics, finds that
there are serious flaws in the way earthquake prone
buildings are designated, which will have hugely detrimental
effects on New Zealand’s economy, communities and
individuals.

The report’s author, Ian Harrison, states
that the critical ‘earthquake prone’ building trigger
point of 34 percent of new building code was decided
arbitrarily and has no supporting analysis or sufficient
regard for costs and benefits.

“No other country applies
across the board national earthquake strengthening standards
because it is economically illogical to do so,” Mr
Harrison says. New Zealand’s attempt will cost over $10
billion, but produce benefits of under $100 million. The
current framework values an Aucklander’s life at about
3,000 times higher than a
Wellingtonian’s”.

“Applying a sensible cost benefit
analysis and internationally recognised life safety
standards would likely show that only a small proportion of
the buildings currently designated as ‘earthquake prone’
would be excessively risky”, he says.

The report also
finds that policy decisions were effectively made by
industry groups, rather than the Government, and that
ministers were not properly or accurately informed of the
process.

Ian Harrison is a specialist in low probability,
high impact events such as financial crises and natural
disasters. He has worked for the Reserve Bank of New
Zealand, the World Bank and the International Monetary
Fund.

Who are Tailrisk
Economics?Tailrisk Economics are a Wellington
economics consultancy, specialising in low probability high
impact events such as financial crises and natural
disasters. Tailrisk economics also provide consulting
services on general economics, financial regulations and
financial modelling.

Who is Ian Harrison?Ian
Harrison is the principal of Tailrisk Economics. He has a
Bachelor of Commerce and Administration (Honours) from
Victoria University Wellington, and a Master of Public
Policy from the School of Advanced International Studies at
Johns Hopkins University. Before setting up Tailrisk
Economics, he worked with the Reserve Bank of New Zealand,
the World Bank, the International Monetary Fund and the Bank
for International Settlements.

What was the reason for
investigating and reporting on this issue? Who funded this
report?This report was a personal project of Ian
Harrison. It was not commissioned by a client or any other
person. Mr Harrison chose to write this report due to his
extensive knowledge of the economics of low probability,
high impact events. This provides him with the ability to
conduct comprehensive analysis of earthquakes and their
associated economic effects; particularly the economic
impact of deeming buildings as ‘earthquake
prone’.

Are your source materials, such as the emails
between government officials referred to in the report
available?Due to the large number of documents and
evidence collated from various sources which the basis of
the report’s conclusions, it is not viable to publish it
all. Relevant material is available on request.

How did
these problems with earthquake strengthening policies
arise?The critical ‘earthquake prone’ building
trigger point of 34 percent of the new building code was
developed arbitrarily with little supporting analysis or
costs and benefit consideration.

What is the key
recommendation from this report?The report
recommends that earthquake strengthening legislation be
amended to ensure standards are evidence based, and to
provide New Zealanders with useful and practicable knowledge
of earthquake risk. The Government should targeting its
resources to fix the localised risk hot spot now, rather
than taking up to 20 years to do so and wasting money on low
risk areas.

How does New Zealand’s approach to
earthquake safety compare to other countries? Considering
our seismic activity, are we getting value for
money?No other country applies across the board
national earthquake strengthening standards to existing
buildings, and it is economically illogical to do so. New
Zealand’s attempt to do this will cost over $10 billion
but will produce benefits of under $100 million. For
example, in Auckland, the current framework is expected to
cost well over $3 billion but will take 4,000 years to save
a single life. This is not value for money, for example if
the same amount were spent improving road safety or
healthcare, thousands more lives could be saved. The
Government’s analysis also values an Aucklander’s life
at about 3,000 times higher than a Wellingtonian’s.

The
largest possible earthquake used in New Zealand’s
framework, applicable to low risk areas such as Auckland, is
similar in magnitude to the largest possible earthquake that
could occur in the United Kingdom. If the British were to
apply the New Zealand test they would have hundreds of
thousands of ‘earthquake prone’ buildings, which would
cost hundreds of billions of pounds to strengthen for almost
no gain. Fortunately for the British they have more
sense.

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